- Net sales of $78.4 million set new quarterly record; records set in both
friction products and precision components segments
- Operations in Tulsa show improvement during the quarter
CLEVELAND, May 2 /PRNewswire-FirstCall/ -- Hawk Corporation (Amex: HWK)
announced today that net sales for the first quarter of 2006 increased by
8.7% to $78.4 million, a quarterly record, from $72.1 million in the
comparable prior year period. The $78.4 million of net sales in the first
quarter of 2006 exceeded the Company's previously issued guidance range of
$74.0 million to $77.0 million.
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The Company's net sales benefited during the quarter from continued
strong demand in a number of the Company's end markets, continued market
share gains and sales to new customer applications. The Company achieved
double digit sales increases during the quarter in its construction and
mining, heavy truck, friction performance automotive, fluid power,
automotive and lawn and garden end markets during the quarter. The Company
also experienced continued strong demand from its aerospace end market
during the quarter. The effect of foreign currency exchange rates reduced
reported net sales by 1.5% during the quarter.
Income from operations was $3.3 million in the first quarter of 2006, a
decrease of $3.3 million, compared to $6.6 million in the comparable prior
year period. The decrease was primarily the result of the continuing
expected start-up costs at the Company's Tulsa friction products facility
and to a lesser extent, increased medical expenses, raw material cost
increases and increased depreciation expense during the period. Partially
offsetting this reduction in operating income during the first quarter of
2006 were significant operating improvements at the Company's precision
components segment. Income from operations in the first quarter of 2006 was
marginally higher than the Company's previously issued guidance range of
$2.0 million to $3.0 million.
Adjusted income from operations in the 2006 first quarter of $3.3
million compares to adjusted income from operations of $8.4 million (Table
1) in the first quarter of 2005. Adjusted income from operation in the
first quarter of 2005 excludes direct restructuring and loan forgiveness
costs of $1.8 million incurred during the period. There were no comparable
costs in the first quarter of 2006.
Ronald E. Weinberg, Hawk's Chairman and CEO, said, "We are pleased with
our 2006 first quarter results. We reported record sales during the
quarter, we witnessed the beginning of the validation of our precision
components technology initiatives with the introduction of several new
products, and most importantly, we continued to experience progress in our
new Tulsa facility." Mr. Weinberg continued, "While there is much to be
done in bringing the Tulsa facility to world-class operating standards, our
production and delivery metrics have continued to improve during the last
three months."
The Company reported net income of $0.4 million, or $.04 per diluted
share in the first quarter of 2006 compared to net income of $1.9 million,
or $.21 per diluted share, in the comparable prior year period. The
decrease is primarily attributable to the continued start-up costs
associated with the Tulsa facility during the three months ended March 31,
2006.
Business Segment Results
Net sales in the friction products segment for the first quarter ended
March 31, 2006 increased $4.7 million, or 10.6%, to $49.1 million from
$44.4 million in the comparable prior year period, establishing a quarterly
record for the segment. Primary drivers of this increase were strong demand
in the construction and mining, heavy truck, performance automotive and
aerospace markets, increased sales to the aftermarket as well as sales from
new product applications to the construction and heavy truck markets. The
effect of foreign currency exchange rates reduced the friction products
segment's reported net sales by 2.4% during the quarter.
For the first quarter ended March 31, 2006, income from operations in
the friction products segment was $1.3 million, a decrease of $3.7 million
from $5.0 million in the comparable prior year period. The decrease was the
primarily the result of expenses incurred due to the continued start-up
costs in Tulsa previously described. Adjusted income from operations of
$1.3 million in the first quarter of 2006 compares to adjusted income from
operations of $6.3 million (Table 1) in the comparable quarter of 2005.
Net sales in the Company's friction products segment in the first
quarter of 2006 of $49.1 million represented a 33.1% improvement compared
to net sales in the fourth quarter of 2005 of $36.9 million, while income
from operations for the first quarter of 2006 of $1.3 million compares to
an adjusted loss from operations of $2.7 million, an improvement of $4.0
million (Table 2) from the fourth quarter of 2005. The improvement in the
segment's net sales and operating income during this sequential period is
due primarily to operating improvements and increased production
capabilities at the new facility in Tulsa.
In the Company's precision components segment, net sales for the three
months ended March 31, 2006 were up $2.8 million, or 12.3%, to $25.6
million, a quarterly record, from $22.8 million in the comparable prior
period. The segment's net sales increases were the result of strong end
market demand and new product introductions, primarily in the fluid power,
lawn and garden and automotive markets during the quarter.
Income from operations in the precision components segment in the first
quarter of 2006 was $2.1 million, an increase of $1.1 million, or 110.0%
from the comparable prior year period. During the first quarter of 2006,
the segment benefited from changes in product mix, margin improvement from
volume related absorption of overhead and operational improvements made at
the segment's Pennsylvania operations. The increase in operating income was
partially offset by increased medical costs, raw material increases and
increased depreciation expense relating to the segment's new technology
program implementation in the first quarter of 2006 compared to the first
quarter of 2005. Adjusted income from operations of $2.1 million in the
first quarter of 2006 compares to adjusted income of $1.5 million (Table 1)
in the first quarter of 2005.
In the Company's performance racing segment, net sales in the first
quarter were $3.7 million, a decrease of $1.2 million or 24.5%, from $4.9
million in the comparable prior year period. The decrease resulted
primarily from a realignment of the Company's strategic customer focus and
the timing of new product introductions. At the end of 2005, the Company
made a significant change in the management of its driveline business
operations, and in so doing began repositioning itself in the marketplace
by increasing the level of engineering and product design capabilities
while aligning itself with a new provider of premium gears for the racing
market.
For the quarter ended March 31, 2006, loss from operations in the
performance racing segment was $0.1 million compared to income of $0.5
million in the comparable prior year period primarily as a result of the
reduced sales volumes. The adjusted loss from operations in the first
quarter of 2006 of $0.1 million compares to adjusted income from operations
of $0.6 million (Table 1) in the first quarter of 2005.
Working Capital and Liquidity
As of March 31, 2006, working capital levels increased by $11.3 million
from December 31, 2005 levels primarily resulting from increased accounts
receivable and inventory levels in response to the sales increase during
the first quarter of 2006, payment of senior note interest of $4.8 million
during the quarter and payments of the 2005 annual incentive compensation
and profit sharing payments during the quarter. Net sales in the first
quarter of 2006 were $18.7 million or 31.3% higher than the fourth quarter
of 2005. The net increase in working capital was funded by borrowings under
the Company's revolving credit facility. As of March 31, 2006, the Company
had $15.3 million outstanding under its revolving credit facility. As of
March 31, 2006, the Company has $12.3 million available for additional
borrowings under its revolving credit facility.
Business Outlook
Hawk reaffirms its previously issued guidance expecting net sales for
the full year 2006 to be between $290.0 million and $300.0 million, or an
increase of between 9.3% and 13.0% compared to net sales for the full year
2005 of $265.4 million, and income from operations to increase to a range
of $23.0 million to $25.0 million in 2006, or an increase of between 49.4%
to 62.3%, from adjusted income from operations of $15.4 million for the
full year 2005. Included in the guidance of operating income is
consolidated depreciation and amortization expense for 2006 of
approximately $13.0 million. As a result of the above factors, the Company
continues to expect, as disclosed in previously issued releases, earnings
for 2006 to be in a range of $.80 to $.90 cents per diluted common share on
approximately 9.4 million fully diluted shares.
In the second quarter of 2006, the Company expects net sales to be in a
range of $73.0 million to $77.0 million, an increase of between 3.0% and
8.6% from net sales reported in the second quarter of 2005 of $70.9
million.
Hawk expects income from operations in the second quarter of 2006 to be
between $3.5 million and $7.0 million, or a decrease of between 53.3% and
6.7% as compared to second quarter 2005 adjusted income from operations of
$7.5 million (Table 3). The second quarter 2006 forecast is impacted by the
continuation of expected continued start-up costs in the Tulsa facility and
increases in commodity prices.
The Company
Hawk Corporation is a leading worldwide supplier of highly engineered
products. Its friction products group is a leading supplier of friction
materials for brakes, clutches and transmissions used in airplanes, trucks,
construction equipment, farm equipment, recreational and performance
automotive vehicles. Through its precision components group, the Company is
a leading supplier of powder metal and metal injected molded components
used in industrial, consumer and other applications, such as pumps, motors
and transmissions, lawn and garden equipment, appliances, small hand tools,
trucks and telecommunications equipment. The Company's performance racing
group manufactures clutches and gearboxes for motorsport applications and
performance automotive markets. Headquartered in Cleveland, Ohio, Hawk has
approximately 1,800 employees at 17 manufacturing, research, sales and
administrative sites in 5 countries.
Forward-Looking Statements
This press release includes forward-looking statements concerning
sales, market share, foreign operations, working capital and other
statements that involve risks and uncertainties. These forward-looking
statements are based upon management's expectations and beliefs concerning
future events. Forward- looking statements are necessarily subject to
risks, uncertainties and other factors, many of which are outside the
control of the Company and which could cause actual results to differ
materially from such statements. These risks and uncertainties include, but
are not limited to: continuing impact of operational inefficiencies at the
Tulsa friction products facility; the ability to hire and train qualified
people at the Company's new friction products facility; the ability to
achieve the projected cost savings at the new facility, including whether
the cost savings can be achieved in a timely manner; the effect of any
interruption in the Company's supply of raw materials or a substantial
increase in the price of raw materials; the impact on the Company's gross
profit margins as a result of changes in product mix; the ability of the
Company to begin generating profits from its powder metal facility in
China; the effect of other manufacturers who compete with the Company
transferring manufacturing operations to China and other lower wage
locations; the effect on the Company's international operations of
unexpected changes in legal and regulatory requirements, export
restrictions, currency controls, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, political and
economic instability, difficulty in accounts receivable collection and
potentially adverse tax consequences; the effect of foreign currency
exchange rates as the Company's non-U.S. sales continue to increase; the
ability of the Company to meet the terms of its credit facilities,
including the numerous financial covenants and other restrictions; the
Company's vulnerability to adverse general economic and industry conditions
and competition; the ability of the Company to successfully negotiate new
agreements, as they expire, with its unions representing certain of its
employees, on terms favorable to the Company without experiencing work
stoppages; the ability of the Company to utilize tax loss carryforwards in
future periods; whether or not the Company's motor segment will be sold and
if sold whether the sale can take place in the time or at the price
projected by the Company; and, the continuity of business relationships
with major customers.
Actual results and events may differ significantly from those projected
in the forward-looking statements. Reference is made to Hawk's filings with
the Securities and Exchange Commission, including its annual report on Form
10-K for the year ended December 31, 2005, its quarterly reports on Form
10-Q, and other periodic filings, for a description of the foregoing and
other factors that could cause actual results to differ materially from
those in the forward-looking statements. Any forward-looking statement
speaks only as of the date on which such statement is made, and the Company
undertakes no obligation to update any forward-looking statement, whether
as a result of new information, future events or otherwise.
Investor Conference Call
A live Internet broadcast of the Company's conference call discussing
quarterly results can be accessed via the investor relations page on Hawk
Corporation's web site (http://www.hawkcorp.com) on Tuesday, May 2, 2006 at 2:00
p.m. Eastern time. An archive of the call will be available shortly after
the end of the conference call on the investor relations page of the
Company's web site.
Hawk Corporation is online at: http://www.hawkcorp.com/
HAWK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
2006 2005
Net sales $78,374 $72,071
Cost of sales 64,057 53,385
Gross profit 14,317 18,686
Selling, technical and administrative expenses 10,933 11,206
Restructuring costs 731
Amortization of intangibles 127 184
Total expenses 11,060 12,121
Income from operations 3,257 6,565
Interest expense (2,812) (2,616)
Interest income 9 10
Other (expense) income, net 125 (151)
Income from continuing operations
before income taxes 579 3,808
Income tax provision 259 1,937
Income from continuing operations 320 1,871
Income from discontinued operations, net of tax 84 73
Net income $404 $1,944
Diluted earnings per share:
Earnings from continuing operations $.03 $.20
Discontinued operations, net of tax .01 .01
Earnings per diluted share $.04 $.21
Diluted shares outstanding 9,513 9,232
Three Months Ended
March 31,
Segment data: 2006 2005
Net sales
Friction products $49,087 $44,393
Precision components 25,557 22,799
Performance racing 3,730 4,879
Total $78,374 $72,071
Gross profit
Friction products $8,259 $12,585
Precision components 5,265 4,692
Performance racing 793 1,409
Total $14,317 $18,686
Depreciation and amortization:
Friction products $1,719 $1,801
Precision components 1,273 1,012
Performance racing 58 57
Total $3,050 $2,870
Income (loss) from operations:
Friction products $1,302 $5,017
Precision components 2,062 1,030
Performance racing (107) 518
Total $3,257 $6,565
Adjusted income (loss) from operations (Table 1):
Friction products $1,302 $6,341
Precision components 2,062 1,473
Performance racing (107) 582
Total $3,257 $8,396
Reconciliation of Financial Measures
This earnings release discloses income from operations, income from
operations per diluted share and adjusted income from operations (income from
operations before restructuring, employee benefit curtailment and loan
forgiveness costs) for each business segment or for the Company in total, each
of which excludes amounts that differ from the most directly comparable
measure calculated in accordance with U.S. generally accepted accounting
principles (GAAP). A reconciliation of each of these financial measures to
the most comparable GAAP measure is included below in this earnings release.
Management believes that these financial measures are useful to investors
because they exclude the Company's non-recurring restructuring and other
costs, allowing investors to more easily compare the Company's financial
performance period to period. Management uses this information in monitoring
and evaluating the on-going performance of the Company and each of its
business segments.
Table 1
Adjusted income from operations
Three months ended
March 31,
Income
(loss) from Adjusted
operations, income
as reported Restructuring Other (loss) from
(GAAP) costs costs(1) operations
2006 2005 2006 2005 2006 2005 2006 2005
Friction
products $1,302 $5,017 $ $731 $ $593 $1,302 $6,341
Precision
components 2,062 1,030 443 2,062 1,473
Performance
racing (107) 518 64 (107) 582
Total pre-tax $3,257 $6,565 $ $731 $ $1,100 $3,257 $8,396
Operating margin 4.2% 9.2% 4.2% 11.7%
1. Other costs include loan forgiveness costs.
Table 2
Adjusted income from operations
Three months ended
Income (loss) from operations, Restructuring
as reported (GAAP) costs(1)
3/31/06 12/31/05 3/31/06 12/31/05
Friction products $1,302 $(3,828) $ $1,176
Adjusted income (loss)
Other costs from operations
3/31/06 12/31/05 3/31/06 12/31/05
Friction products $ $1,302 $(2,652)
1. Restructuring costs in this table for the fourth quarter ended
December 31, 2005 include $0.1 million classified in the Company's
Consolidated Statement of Income as Cost of sales items.
Table 3
Projected adjusted income from operations
Three months ended
(in millions)
Income from operations,
as reported (GAAP) Restructuring costs
6/30/06E 6/30/05 6/30/06E 6/30/05
Total $3.5 - 7.0 $6.2 $ $1.3
Adjusted income
Other costs from operations
6/30/06E 6/30/05 6/30/06E 6/30/05
Total $ $3.5 - 7.0 $7.5
HAWK CORPORATION
CONSOLIDATED BALANCE SHEET (Unaudited)
(in thousands)
March 31, December 31,
2006 2005
ASSETS
Current assets
Cash and cash equivalents $9,055 $7,111
Accounts receivable 47,093 36,225
Inventories 49,493 46,379
Taxes receivable 347 347
Deferred tax asset 4,576 4,430
Other current assets 4,920 5,660
Assets held for sale 1,644 1,644
Assets of discontinued operations 3,910 3,633
Total current assets 121,038 105,429
Property, plant and equipment, net 71,053 70,918
Goodwill 32,495 32,495
Other intangible assets 8,309 8,435
Deferred income taxes 916 916
Other assets 7,921 8,035
49,641 49,881
Total assets $241,732 $226,228
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $36,893 $30,444
Other accrued expenses 17,406 19,629
Short-term debt 1,408 1,386
Current portion of long-term debt 272 307
Liabilities of discontinued operations 3,432 3,334
Total current liabilities 59,411 55,100
Long-term debt 126,053 115,892
Deferred income taxes 900 885
Pension liabilities 10,443 10,522
Other 3,243 3,113
Shareholders' equity 41,682 40,716
Total liabilities and shareholders' equity $241,732 $226,228
SOURCE Hawk Corporation
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CONTACT:
Joseph J. Levanduski, Vice President - CFO,
or Thomas A. Gilbride, Vice President - Finance, of Hawk
Corporation, +1-216-861-3553; or John Baldissera of BPC Financial
Marketing, +1-800-368-1217, for Hawk Corporation
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